Transferring 401k to an RRSP at the end of a TN position

[bbhattac]

I am a Canadian citizen. I have just started working in Boston under TN status. I have my permanent home in Canada and wish to return to Canada after about two or three years of work. While I work here my employer pays matching contribution to a 401k plan, so I am going to go for the plan.

My question is what happens to the money in my 401k plan when the time comes for me to leave US. Can I transfer all of it into my Canadian RRSP account without paying any taxes? What is my best strategy to minimize tax?

[Steven]

Hard to say, because it depends what the rules of the plan are that the company has signed up to. I.e. when the plan is allowed to make distributions to you, when you're allowed to withdraw it and stuff like that.

From the sounds of it you're still a resident of Canada for tax purposes, so you can still contribute to your RRSP anyway. Have a read of: http://www.cra-arc.gc.ca/E/pub/tg/p151/README.html if you're not already familiar with how to file taxes when you're temporarily in the US.

It may even be possible to figure out some way of the matching payment going directly into your RRSP (or at least an RRSP). The company doing the 401(k) plan may have a Canadian equivalent.

Anyway that's your best bet to avoid any tax problems. You've got a problem on the Canadian end if you contribute to a 401(k) because it's not a tax shelter as far as the CRA is concerned. So it's treated like any normal non-RRSP investment would be.

Same problem vice versa, i.e. if you moved your tax home to the US, the US does not recognise an RRSP as a tax shelter either.